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VC funding climbing, study says

IT leads deals in 2005, pushing investments in U.S. companies to their highest total since the dot-com bust.

Venture capital investments in U.S. companies rose to $22.13 billion last year, a 2 percent rise from 2004 and the highest total since the dot-com bust, according to a new study.

Information technology led the roughly 2,200 deals inked in 2005, but the industry's investments of $11.96 billion were down 4 percent from the previous year at $12.45 billion, according to a quarterly report from auditor Ernst & Young and VentureOne, a unit of Dow Jones. At the IT industry's height in 2000, it attracted $59.56 billion in funding.

"Investors clearly showed diversity in their portfolios in 2005. While information technology continued to receive the lion's share of investment, companies focused on health care, business, consumer and financial services, and alternative energy...also gained in favor," Stephen Harmston, director of global research for VentureOne, said in a statement.

Overall venture capital funding in U.S. companies has been muted since the heady days of the Internet boom. Total funding hit a peak in 2000, with investments reaching $94.66 billion. VC funding fell to $34.24 billion in 2001 and $21.98 billion in 2002.

Last year's VC investments represented the highest amounts since then.

According to the report, VCs also are investing more in early stage companies. Early stage investments represented 38 percent of the deals in the fourth quarter of 2005.

Medical-devices companies also attracted more than $2 billion in capital in 2005, their highest amount since 2000. And while alternative energy remained a fraction of total investing, it's growing quickly. Deals in the sector doubled to 24 in 2005, and capital invested increased 135 percent to $194.2 million.

Consumer and business service companies, which include some Internet companies, raised $2.42 billion in capital, a 53 percent boost from 2004 investments.

Within IT, communications pulled in $2.96 billion in investments--5 percent more capital than the previous year. drew $1.11 billion, the most capital invested in the segment in four years.

By region, the San Francisco Bay Area dominated the venture capital investing landscape, followed by New England and Southern California. Companies in the Bay Area attracted $7.69 billion, 35 percent of the total capital in 2005.